Robert Chaston v SWP Group PLC (2002)


Payment by a target company of the fees of accountants retained by the purchaser to prepare a long form report amounted to unlawful financial assistance within s.151 Companies Act 1985.


Defendant's ('SWP') appeal from that part of an order of Davis J dated 26 April 2002 by which he dismissed SWP's Part 20 claim against the respondent ('C') for damages for breach of fiduciary duty for having procured, or contrived in, the grant by a company ('DRC') of which C was a director and major shareholder, of financial assistance for the acquisition by SWP of the shares in DRC's parent company ('Holdings') contrary to s.151 Companies Act 1985. The alleged financial assistance was the incurring of liability to Deloitte and Touche ('D&T') by DRC to pay certain fees, and/or the payment of those fees. The fees arose out of the preparation by D&T of a long form report on behalf of SWP in relation to the DRC group of companies. The issues on the appeal were: (i) whether the commitment to pay those fees, or the payment of them, amounted to "financial assistance" at all; (ii) to which party was the financial assistance given; and (iii) whether the assistance was "for the purpose of" the acquisition by SWP of the share capital of Holdings. SWP brought its Part 20 claim as assignee from DRC of all claims that it might have against C.


(1) The general mischief towards which s.151 was directed was clear enough: the resources of the target company and its subsidiaries should not be used directly or indirectly to assist the purchaser financially to make the acquisition. (2) Looked at as a matter of commercial substance and reality, the payment of D&T's fees undoubtedly helped to smooth the course of the acquisition. (3) The judge was wrong to conclude that this assistance was not "for the purpose of" the acquisition. The fact that the fees had been paid in order to further the acquisition inevitably meant that the payment was for the purpose of the acquisition.